Segregation of duties in transactional banking

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ONCE UPON A TIME: the relevance of history in risk management (final)
Alberta Quarcoopome

– is it an obstacle in modern banking? (3)

“Money in the bank is like toothpaste in the tube. Easy to take out, hard to put back.” – Earl Wilson.

Ghana is still recovering from the shock of the recent armed attack on a cash van (not a bullion van) which ended up with the killing of the Police Guard and a nearby hawker. This is the time for all of us to have a change of mindset about handling large volumes of cash. This is the time that bank Relationship Officers should restart selling electronic banking to their key customers in trading, manufacturing and other customers who still wait for customers to bring cash to their premises! The earlier they cut back on cash transactions the better and less risky for them as well as the cash-in-transit teams.

However, while traditional banking is still high on most agenda of banks, it has to be handled well. If it has to be done, it has to be done well.

Segregation of Duties in Cash Transactions

Since the banks’ stock-in-trade is cash, the segregation of cash duties is a policy to reduce the risk of accidental and intentional money loss by employees. Proper segregation of duties in a cash business requires authorization, custody, recording and reconciliation. A good combination of all these steps involved in dividing and overlapping duties is a great way to reduce the chances of human error and fraud.

The Journey of Cash in Banks

Let us go through the journey of cash in banks. Customers bring their cash deposits for safekeeping as well as for investments. Tellers have to make sure that the cash is checked thoroughly to avoid mixtures and counterfeits. The tellers do not send the cash directly into the vaults. They send the cash to their supervisor for bulk checking and transfer to the vaults under their custody. This segregation of cash custody also involves transfers to the vault custodians who have separate keys and combinations to the vault.  Even in the days when banks used to house their staff, vault custodians never lodged in the same quarters. This was to prevent collusion and thieves locating the two sets of keys to raid the bank vault! After all, no single individual enters the vault alone.

Now, let us look at the Paying cashier who receives cash from the custodians every morning to pay customers who present cheques. This bulk cash is received by the teller and checked before carriage by “Cash boys or cash operatives” from the vault to the teller’s cubicle. This cash is not left in the single care of the carrier. The teller is expected to accompany the carrier to his cubicle and lock it up. Tellers are expected to perform data entry for every transaction they perform, which is checked and reconciled at the end of the day by their supervisors.

Finally, let us look at cash-in-transit. It is not done by one person. In fact, due to security reasons, the team includes a police guard. The above process shows that the segregation is complete when the cash management goes through the following four main activities: 

Authorisation

Authorization is the first step in the chain of custody. Only one person is authorized to perform such a duty. For example, a teller receives cash, but he or she should not retain the cash in his or her custody.

Custody

The length of custody depends on the duty. For example, a cashier handling money for an eight-hour shift in most cases should count and record his or her end-of-day totals, but a supervisor should reconcile the totals to verify the cash against receipts. This ensures that all money is accounted for, and none is missing.

Recording of transactions

Recording requires a teller or supervisor to physically and electronically record a cash total in the system. This cash duty ensures a paper trail that follows the money. When multiple people are handling cash, it is essential to segregate duties throughout the chain of custody.

Reconciliation

Reconciliation is the final step in the segregation of cash duties and chain of custody. It ensures that everyone who handled the money accounted for the cash correctly.  When a teller reconciles the cash totals for the day, it provides an opportunity for the branch to detect any errors in accounting or discover potential internal theft. The bank should always have a different person to reconcile than the one who received, handled or recorded the money.

Cases of Absolute Trust and the Resulting Betrayal

  • Two Friends were vault custodians. One went out shopping and left his key with the other. That day’s cash was not reconciled. Three days later, the cash in vault was short by GHc10,000. There was no CCTV coverage in the vault.
  • A teller left her cubicle open and went for lunch. Various functionaries went in and out of her cubicle in her absence. A shortage of cash was detected at the end of day. One bundle of GHc20 notes was stolen. The CCTV in the branch was faulty on that day.
  • A branch manager, who was a key holder, decided to leave her keys with one of her “trusted” officers for her use the next day. The officer did not sign for it in the key holding register. There was a shortage of one GHc5 bundle. (GHc5,000)
  • A specie transaction was not accompanied by a police guard. The teller was left alone with the driver, who at a point left the car to buy a bottle of coke at a filling station. There was a shortage detected at the end of day.
  • The tellers in the bulk cash counting bay (where bulk cash is checked) went out for lunch leaving only one teller. The cash boy was also sent to purchase food for the branch manager. A shortage of GHc5,000 was recorded at the end of day.
  • A cash collection exercise from customers’ premises was delayed causing the police guard to abandon the specie team mid-way, when it was 5.00pm, leaving only the teller and driver. They were accosted by armed robbers.

There are several banking transactions that have the segregation of duty policy embedded. 

For more insights on this topic, please book a copy of my new book, “THE MODERN BRANCH MANAGER’S COMPANION” which involves the adoption of a multi-disciplinary approach in the practice of today’s branch management. It also shares invaluable insights on the mindset needed to navigate and make a difference in the changing dynamics of the banking industry. Call 0244333051 for your copy. 

ABOUT THE AUTHOR

Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the Author of Three books: “The 21st Century Bank Teller: A Strategic Partner” and “My Front Desk Experience: A Young Banker’s Story” and “The Modern Branch Manager’s Companion”. She uses her experience and practical case studies, training young bankers in operational risk management, sales, customer service, banking operations and fraud. 

CONTACT

Website www.alkanbiz.com

Email:[email protected]alkanbiz.com  or [email protected]

Tel: +233-0244333051/+233-0244611343

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